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An Rx for Unexpected Medical Bills

The leading cause of personal bankruptcy in the United States isn’t credit card bills or debt from a home, it’s medical bills, according to new research by NerdWallet Health, a segment of the price comparison website www.nerdwallet.com.

“Medical expenses can really deplete a person’s financial assets,” said certified financial planner Niv Persaud of Transition Planning & Guidance, LLC, in Atlanta, Ga.

An inability to pay medical expenses will cause an estimated 60 percent of personal bankruptcies in 2013, according to NerdWallet, which estimates that this year one in five American adults will struggle to pay their medical bills. What’s more, people with health insurance aren’t immune to those struggles — 10 million insured American adults younger than 65 will face medical bills they are unable to pay.

“Medical bills can completely overwhelm a family when illness strikes,” said Christina LaMontagne, VP of Health at NerdWallet.

Minimizing the toll unexpected medical bills take on an individual’s and a family’s finances and lifestyle requires preventive medicine — in this case, it’s called planning in advance. Taking a few simple planning steps before the unexpected strikes allows a person with unanticipated medical bills to put the focus where it belongs: on their health. “When you have a health issue, the last thing you want to be worrying about is your financial situation,” Persaud said. “Getting better should be the number one concern.”

Here’s how to plan for unexpected medical bills:

  • Whether you have health insurance or not, prepare to pay at least some medical expenses out-of-pocket. While people without insurance must pay virtually all those expenses out of pocket, people with insurance are likely to incur potentially significant expenses, too, to cover deductibles, cost-sharing plans (such as where expenses are paid 80 percent by the insurer, 20 percent by the insured), co-pays and expenses incurred above benefits caps set by the insurer (where the insured is responsible for any expenses above $5,000, for example).
  • Get covered. If your employer offers health insurance and/or disability insurance, take advantage of it. If you’re self-employed, get health and disability coverage for yourself (and your family) via an insurance agent, or join your spouse’s employer-based plan.
  • Know what your insurance does — and doesn’t — cover. If you have health, disability and/or auto insurance, each of those could come into play, depending on the nature of the health issue (such as if you’re injured in an automobile or at work). It’s vital to familiarize yourself with the terms of your policy that may impact your wallet: deductible and cost-sharing levels, lifetime benefits caps/limits, etc. A meeting with your insurance agent can help you understand your coverage, deductible, and premiums better.
  • Establish an emergency fund, a just-in-case savings account where you keep funds to cover unexpected expenses. Persaud recommends the fund contain enough to cover at least 3-6 months’ worth of household expenses — and more for people who lack health insurance. Since the money must be readily accessible, she suggests keeping it in a simple savings or money market account.
  • Ask for itemized bills from medical providers and review all bills promptly. Medical providers do make billing mistakes. Catching them yourself and bringing them to the provider’s attention can save you hundreds, even thousands, of dollars.
  • Don’t be afraid to negotiate with a medical provider. If you foresee having difficulty paying a medical bill, proactively tell your provider. They are often inclined to offer discounts, payment plans and the like.
  • Get well soon! The less burdened you are by financial worries, the more positive energy you’ll have to dedicate to recovery.

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September 2013 — This column is provided by the Financial Planning Association® , the principle professional organization for Certified Financial PlannerTM (CFP®) professionals. FPA is the community that fosters the value of financial planning and advances the financial planning profession and its members demonstrate and support a professional commitment to education and a client-centered financial planning process.  

The Financial Planning Association is the owner of trademark, service mark and collective membership mark rights in: FPA, FPA/Logo and FINANCIAL PLANNING ASSOCIATION.  The marks may not be used without written permission from the Financial Planning Association.